Hello everyone. Thank you for joining us and welcome to the RH second quarter fiscal 2026 earnings call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Alison Malkin of ICR. Alison, please go ahead.

Thank you. Good afternoon, everyone. Thank you for joining us for our second quarter fiscal 2026 earnings call. Joining me today are Gary Friedman, Chairman and Chief Executive Officer, and Jack Preston, Chief Financial Officer. Before we start, I would like to remind you of our legal disclaimer that we will make certain statements today that are forward-looking within the meaning of the federal securities laws, including statements about the outlook of our business and other matters referenced in our press release issued today. These four looking statements involve a number of risks and uncertainties that could cause actual results to differ materially. Please refer to our SEC filings as well as our press release issued today for a more detailed description of the risk factors that may affect our results. Please also note that these four looking statements reflect our opinions only as of the date of this call. and we undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements in light of new information or future events. Also, during this call, we may discuss non-GAAP financial measures which adjust our GAAP results to eliminate the impact of certain items. You will find additional information regarding these non-GAAP financial measures and a reconciliation of these non-GAAP to GAAP measures in today's financial results press release. A live broadcast of this call is also available on the investor relations section of our website at ir.rh.com. And now I'd like to turn the call over to Gary.

Good afternoon, everyone. We're coming live from New York City today. We got in last night. for the opening of our first RHS Stage Gallery in Greenwich, Connecticut. So I know I saw some of you there last night, and those who haven't seen it, I would encourage everyone to get there. Our newest, latest, greatest work. So let me start with the letter to our people, partners, and shareholders. GapNet revenues of $922.2 million exceeded the high end of our guidance, increasing 2.6% versus last year, and accelerating 4.2 points over the first quarter as our momentum begins to build from the significant growth strategies we had recently put into motion. Normalized adjusted EBITDA margin of 13.4% also exceeded the high end of our guidance for adjusted EBITDA margin. And we generated 72.3 million of cash in the quarter, inclusive of a free cash flow and a $42 million distribution from our Aspen joint ventures excluding tariff refunds of $69.2 million. We recognize the tariff benefit of $55.1 million in the second quarter and expect to recognize an additional $13.9 million tariff benefit in the second half of the year, which we plan to use to offset $50 million of unplanned cost increases across our supply chain with a significant and sustained spike in oil prices as a result of the continued conflict in the Middle East. The remaining 19 million of tariff proceeds will benefit earnings, and it's included in our updated adjusted EBITDA margin outlook for fiscal 2026. Updated fiscal year 2026 outlook. Revenue growth of 5.5% to 7%. Adjusted EBITDA margin of 15% to 16.2%. Free cash flow, asset sales, and distribution of equity method investments of $300 million to $400 million. The above outlook includes an approximate negative 340 basis point adjusted EBITDA margin impact from pre-opening and startup costs to support our international expansions. Third quarter 2026 outlook. Revenue growth of five to six percent, inclusive of backlog reduction of 2.5 points, RH estates of two points, new galleries and other one point. adjusted EBITDA margin of 12.5 to 13.5 percent the above outlook includes an approximate negative 310 basis point adjusted EBITDA margin impact from pre-opening and startup costs to support our international expansion fourth quarter 2026 outlook revenue growth of 16.1 to 21.2 percent inclusive of backlog reductions of 6.5 points RH Estates growth of eight points, new galleries and other of four points, adjusted EBITDA margin of 19.7% to 22.9%. The above outlook includes an approximately negative 190 basis points of adjusted EBITDA margin impact from pre-opening and startup costs to support our international expansion. Expanding the brand and doubling the TAM We believe the introduction of RH Estates, our latest brand extension, introduced with a 268-page sourcebook that arrived in homes late June through mid-July, has the potential to double the total addressable market of the RH brand. Over 60% of luxury homes across North America have traditional or classic architecture, with a higher concentration in Europe. A home's architectural vernacular is generally the driving factor influencing stylistic direction for both interior designers and consumers. Additionally, we believe traditional and classic furniture will anchor the next major style trend across the industry over the next 20 plus years at the dominant trends from the 1980s through 2010, such as eclecticism based on classic design and antiques highlighted with contemporary modern pieces and the California look pioneered by Michael Taylor, who Architectural Digest called one of the 20 greatest designers of all time, and who twisted eclecticism towards a more rustic yet refined point of view, blurring the lines between indoors and outdoors. Michael Taylor's California look was amplified and refined by Richard Hallberg, Daniel Cuevas, and Barbara Wesley, designers who together launched Formations, one of the most admired and respected design firms to the trade luxury The three later acquired Denison Lean, giving them authority in authentic classical European furniture and antiques, blending them masterfully and creating a stylistic vocabulary that was layered and looked to have been collected over time. Their flagship showrooms on Melrose Avenue in West Hollywood Design District have been the first stop for many of the best interior designers and collectors from around the world. Our acquisitions over the past six years of Michael Taylor Designs, Formations, Denison Lean, Joseph Ju, and Dimitri, plus our decades-long relationship with many of the world's distinguished antique collectors, such as Ed Hardy of San Francisco, Ludovic Messinger, who set the tone and trends at the world-famous Paris Flea Market, and Rebecca Hill of London and Muging, who now leads product curation for RH Upholstery, plus designers such as Anushka Hemphill, the inventor of Blake's, the first and most famous boutique hotel in the world, who also designed the World of RH Bar and Lounge and the Perch Restaurant at RH London, plus the many designers, artisans, and manufacturers who are all part of the intricate and inspiring RH ecosystem of design have come together to lead, form, and ride this next wave with the launch of RH Estates. This is a collective effort with a level of talent, experience, and scale unseen before in our industry. While we launched our H-Escape estates with the conservative initial mailing, our plan is to aggressively expand the assortment and circulation in November, where we will have estates on the main floor of our galleries that represent 80% of our business. And in-stocks will be at an adequate level to meet and fill demand, hence the fourth quarter acceleration in our output. You can expect this to continue to rapidly expand the assortment over the next five years, and we predict it will represent 50% of our offering at that time. We also believe our two states will be margin accretive on multiple levels. One, we believe the quality, design, and exclusivity of the offering will command higher margins. And two, the average price point is currently 45% higher than our existing assortment. thus creating cost leverage and margin accretion throughout our operating model. It's also important to note that we will aggressively protect the exclusivity of our products and the integrity of our brand. Almost the entirety of the Arch Estates collection is currently protected by trade dress or have design patents pending due to the acquisitions of Michael Taylor, Formations, Denison Lean, and Dimitri as well as pieces developed with internal and external designers. You will note on the back of the source book it reads, RH vigorously protects and pursues appropriate legal remedies against unauthorized copying, imitation, or misuse worldwide of its product designs, photographs, and collection names through intellectual property rights, including design patents, unregistered design rights, trade dress, trademarks, copyrights, and pending applications. Extraordinary takes more time, costs more money, involves more people, doing more things in a more complicated manner, but it's worth it. Over the entrance of RH Center of Innovation, it reads, RH, the home of the extraordinary, the remarkable, and the amazing. I'm sure there are people who visit or come in for an interview and think the above is some corporate nonsense. I'm here to tell you it's not. It's logic, experience, and I would argue common sense. What we've learned on our 26 year journey of transforming restoration hardware, a nearly bankrupt company with a $20 million market cap and a box of oxidol laundry detergent on the cover of its catalog into RH, the leading luxury home brand in the world with almost 4 billion in annual revenues, is that we always figured out how to monetize extraordinary and remarkable work. And we found it very hard to monetize ordinary and unremarkable. and yes, it has taken more time, cost more money, involved more people, doing more things in a more complicated manner. And yes, it has always been worth it. And this time will be no different. If you're a long-term shareholder and owner like I am, thank you for belief and patience. While we've been running through the mud for the past four years of the worst housing market in four decades, We've also made some amazing investments, done remarkable work, and expect extraordinary results over the next several quarters and years. Let me take you through a few of them. RH International. We expect the drag from international to decrease from 450 basis points in half one of this year to 250 basis points in half two, or 340 basis points for the year. We further expect the drag from international to decrease from 340 basis points in 2026 to 150 basis points in 2027 as we cycle the significant investments of opening our three global flagships in Paris, Milan, and London over a 10-month period from September 2025 to July 2026. On June 27th, we opened what I believe is our most innovative and extraordinary brand experience yet, RH London, the gallery in Mayfair. If you want to see our very best work and maybe the best work in the world of retail, it's at 7 Burlington Gardens in the heart of NACA. I'm happy to report the design pipeline reached almost 7 million in the first eight weeks, rivaling the design pipelines of RH Newport and RH New York. It will take several months to turn these high caliber complex design jobs, some in the million dollar range, into demand and revenue. but the response to RH London has been nothing short of spectacular. As I mentioned on our last call, I believe RH London will be the amplifier of the RH brand recognition across Europe and the Middle East. Our record investment cycle is now post peak, which will result in lower capital spending and higher returns on invested capital. We expect adjusted capital expenditure We have cycled through our real estate pipeline. that included three global flagships and several multi-story galleries with rooftop restaurants where construction costs doubled post-COVID. We have one multi-story gallery left to complete in Houston in 2027. Our new real estate strategy includes RH Compounds, a multi-building shopping experience with connecting garden courtyards and a central scheduled to open at the end of 26 or the beginning of 2027. And another RH compound that should be under construction soon in Aventura, Florida opening in 2027. Both projects are projected to have a payback in the 12 to 18 month range with return on capital metrics we were accustomed to prior to the pandemic. Additionally, as previously mentioned, we have developed a single story RH design gallery with integrated restaurants with similar expected 12 to 18 months payback ranges. And we are confident that our multiple DOTA markets retail strategies of RH compounds, RH ecosystems, RH design galleries with a single story, and RH interior design offices will significantly increase our return on invested capital and decrease construction timelines. Our long-term success and strategic separation is the result of innovating and investing during uncertain times, and this time is no different. Launching RH Estates, the most compelling collection in the history of our industry that has the potential to expand the brand and double the tan. Opening three most innovative global flagships that will likely never be duplicated in our lifetimes. Developing a global hospitality brand with restaurants that drive significant traffic Brand Awareness and generate on average 65% of the aggregate galleries rent they reside in. Building the world's largest residential interior design firm that is moving our brand beyond presenting and selling products, conceptualizing and selling spaces. All during the darkest days and most prolonged housing downturn in four decades is not for the faint of heart. Never underestimate the power of a team of people who don't know what can't be done. especially these people. Onward Team RH. Carpe diem, Gary. Operator will now open the call to questions.

We will now begin the question and answer session. We kindly ask that you limit yourself to one question and return to the queue for any additional. If you would like to ask a question, please press star one to raise your hand and to withdraw your question, press star one again. We ask that you pick up your handset when asking a question for optimum sound quality and if muted locally, please unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Steven Zaccone with Citigroup. Your line is currently opening. Please go ahead.

Great. Good afternoon. Thanks so much for taking my question. Fun party last night in Greenwich. Congrats on the opening. Maybe we could start there. Gary, could you talk a little about the early demand trends for estates? Are you seeing new customers? Maybe how this launch has played out relative to ones in the past. And then the price point premium. of 45%. That seems sizable. There was a point in the past you talked about pricing being a bit too high. Why is estates different in terms of pricing?

Sure. Thank you, Steven. Thanks for coming to our opening last night. Let's, I'll kind of try to take the questions backwards. Why is 45% reasonable and why is this different? So start there. If you think about that kind of pricing miscues we made with contemporary, you know, that was more of a simple modern aesthetic and a contemporary aesthetic that was, you know, a product that was simpler to make. And I don't think there's anything like RH Estates in the market today, at least nowhere we can find. if you try to do a reverse Google search on any of our product, you're not gonna find it. You might find a foreign website that tried to pick up some of our pictures and pop them on a no name kind of location. So it has to do with a lot with the exclusivity and the quality and the desirability of the product. These products, were being sold for two to three times our retails. I don't know anybody selling this level of quality, these kind of finishes. If you look at the Estates book and what we did with the product, you open and you see the pictures of the photos are very close, tight shots showing that level of detailing and carvings the hardware details, the finished details. You see two full pages of finishes up close, the size of real life finishes. No one's ever done anything like that in this industry because no one's ever had finishes like this in this industry. It's available to a consumer, right? That wasn't a design showroom only available to the trade and with long lead times and special order finishes and where you might have to wait four to six months or longer. My first wife is a high-end interior designer and that's why I understand this industry. I was her client on two projects and then her business partner for 11 years and saw the inefficiencies in the industry and that really framed the opportunity I think for our ages and we see it today is that experience. So when you're the only one with the level of design and quality in a marketplace, you can command a premium. Like are the prices too high? I think they're incredible value. You can't find this kind of product at these kinds of prices. So we don't think about price so much as we think about value. We think about design, quality, and value in that order. If nobody likes the design, nobody cares about the price. So first you have to, with a consumer, you have to love the design. If they love the design, they'll look closer. They'll either click on the website or they'll walk up to the product. And then the second thing a consumer generally does is they perceive the quality. So they'll walk up to it in a gallery, in a store, they'll zoom in on a website, look closer at a page, if it's a source book or catalog, and they'll make a perception about quality. And then they'll look at the price, and at that point, the consumer will make a decision about that design at that quality, is that price of good value, right? So it's not a one-dimensional price discussion, discussion error, it's always a design quality, value discussions. We don't care about the price of anything if we don't love the design, right? And neither does the customer. So I think you've got to start with, if you're a consumer, what do you think about the design? How do you think about the quality? Walk up to it, touch it, open a drawer with the details, look at the hardware, look at the finishes, and then look at the price. And I think that's the hierarchy everybody should look at any product with. So for this design, this quality, we believe this is a tremendous value. I should probably read it. Maybe the next call I'll read some of the letters we're getting about RH Estates because they're incredible. We have people that have never bought from us, were never a customer and all of a sudden they stumbled into a stage, they got the book or they walked into an RH and now we've got a large design job. We just recently had someone in Orange London who their interior designer was going to augment you know, a million plus design job with probably about 50 to 80,000 of RH and broader client into RH London. And now we're doing 95% to about $1.1 million design job. So I think this is, I think you asked me about incrementality or what was it? Relative management set, new customers, yeah. Our people in the galleries will tell you it's almost entirely a new customer. And I think that makes sense. Like I said, I think we turned the company over the last eight years or so too modern, too contemporary, too one-dimensional. But we're quick learners here. you know as we mature and understand the industry and the consumer even more I think if you watch the earnings video I think I did two quarters ago I tried to outline how we think about our age and the opportunity and how we see kind of three major kind of design vernaculars you know call it kind of traditional classic which we call estates contemporary, which we call interiors, and modern, which we call marauder. We kind of think about ourselves now as kind of a juggler, if you will. There's three balls, and then there's always one ball in the air, and that ball that's in the air is generally the ball that's the major trend. For anywhere in our industry, a short trend might be seven to 10 years. The major trends are as long as 25 or 30 years. And people have asked me before, they'll ask me, where did the trends come from? And I think I've said it on conference calls, the trends come from the dead. Generations pass away, their belongings go into estate sales. Estate sales feed the high-end antique markets. The high-end antique markets feed and inform the high-end interior design market. The high-end interior design market you know informs the high-end reproduction market and then it kind of trickles down you know and and so the next trends I outline I talk about him pretty fulsomely in the letter to try to help people see why we're so excited about states because it's it's a almost a magnifying opportunity. So one, we're not addressing the traditional classic market today very well at all. I'd say hardly at all. I think we're dominant in contemporary modern. So if you've got 60% of the luxury homes in America that are classic and traditional, we're probably not addressing that customer. Maybe we're getting 5% of that market. Maybe we're getting 10. We have a few older collections. So the math would tell you that this could and should be half our business or more than half our business. And the data, all the data we look at, we started digging and thinking about it. And we've been working on this now, God, I don't know, seven years. Been conceptualizing this opportunity and we're getting smarter and smarter and seeing a bigger and bigger market. And we think this is, as incremental or more incremental than when we did RH Modern. When we did RH Modern, no one was waking up in the morning saying, hey, honey, we need some modern furniture. We just got a modern condo or new house and it was modern. Nobody was thinking about going to RH for modern furniture in 2012, 13, or 14 until we launched RH Modern in 2015. And RH Modern was highly incremental. one of the most incremental things we've done and it very quickly, you know, went from zero to a billion dollars. And we think this is as incremental, might be more incremental. And we were in Greenwich last night for our opening party. And, you know, I mean, I don't know how, like, we had to take some back roads, we're coming to the airport you know you go through the neighborhoods and you realize like you could drive around here for hours you might not see modern homes yes and some of the homes might have been remodeled with you know some contemporized interiors and that you know might play but when you really look at the bones of the houses and look at the exterior of the houses my sense is the market of Greenwich, Connecticut, Westport, New Canaan, you know that whole area I kind of believe it's like 90-10 85, 15, somewhere like that. And by the way, we have, I'm going to, we don't talk about our store, but I'll let our competitors know this one. Like we do like 47 million in Greenwich, right? We have 14,000 interior selling in the post office and we have about 4,500 in the outdoor gallery today, right? And it's all contemporary. and so I think we're doing $47 million in Greenwich, Connecticut with 14,000 feet of interior selling space. What could a stage do? We have 12,000 feet of interior selling in the new former Ralph Lauren building, which is a perfect building for a stage, by the way. Thank you, Ralph. So we didn't have to build that one. So it's highly capital efficient. for those of you who are going to ask me that question. So this is a big deal. This is a big deal. We've been working on this for a long time. We've never made so many acquisitions to set ourselves up for a business. Michael, if you saw the projects that I did early on, whether it's my condo in San Francisco or the home I still have in Belvedere, that has Michael Taylor dining, diamond table in the kitchen. I let the team reproduce the 17th century antique monastery table I have in the dining room that it's almost identical. I mean, somebody could switch, my daughter saw it at our Center of Innovation and they grew up at that dining table and they were like, dad, why is our dining table here at the Center of Innovation. I go, it's not our dining table. They go, yeah, this is our dining table. I mean, they didn't know. But it's a very expensive antique. I mean, I guess I could say it. I bought it 27 years ago for $58,000. You know, statement dining table, built a nice house in Belvedere. Never spent that much on any piece of furniture or anything. And I'm not saying that to show off. I put it into context. It's an 11-foot table that has two extensions. It extends, I think, to 14, 15 feet. You know, it can seat up to 16 people because it's, I think, almost 50 inches wide. You can sit two people at the end. So it's really great if you're, you know, if you entertain and give a big family. And I don't think anybody addresses that business very well. You know, those are the kind of businesses that we're addressing with the states. We said, you know, initial goal when we're launching, we want to dominate the primary bedroom, the primary living room, and the primary dining room. That's where we'll start. And then we'll continue to expand and dimensionalize the assortment. But that table today, if you take that $58,000 dining table and you just did natural inflation over 27 years, I think it's about a $140,000 dining table today, somewhere like that. And if you look down first dibs, you know you looked at dining tables like they go up to about $250,000 to $300,000 and that table would probably get somewhere between $100,000 to $200,000 if it was on first steps today so we we've got that we'll start we would finally land we were going back and forth so that was $14,995 and that's for the 12 to 1 for the 11 to 1 we should find it like you know and You know, it's an incredible value. I mean, it's, I think a lot of people, again, it's, are we talking about a higher end customer? Of course we are. Should that scare anybody? No. We've moved this brand up over 27 years, right? The way we built this brand is we went from selling knickknacks and tchotchkes and had an average order value of $125, an average order value, you know, from around 10,000. And that's with our orders split. If you really look at it, because we split a lot of design orders we deliver them, so our true average order is much higher than that. But we kept elevating the brand, we kept shedding lower-value customers, acquiring higher-value customers, and we'll continue to do so until we get the right spot. That doesn't mean we won't sell, bedroom furniture that's appropriate for second, third, fourth bedrooms, you know, in houses and second homes and things like that. But we think we're going to be like alone in the market for a while here. I mean, I challenge anybody, take the RH States book, go scan the internet, tell me who's going to compete with us. And then look at this second drop, which is really, kind of like the first drop, you know, because it's going to, it's basically the same book with about 30% more items in it and product in it, but we're just going to an increased number of customers. So we're not just mailing the same people, we're just broadening the contacts, which will significantly lift the business. and when we do that you know we're going to do that in concert with the product will be unveiled in the galleries it'll take over the first floor in all of our big galleries it'll be the main thing it'll be well represented it'll be in stock so November's you know transition time like you know early mid-November we'll have galleries transitioned that are somewhere between 75 and 85% of the business. And then it'll continue to go to the rest of the galleries. And I think all galleries by December, right? So the last 15 to 20% of our volume. So that's when it's really meaningful, right? And I think these products will get an even bigger lift when the customer sees them. As the finishes are so intricate and the detail and the qualities, I think important to see. and Data would say that when you look at the furniture industry today, about 80% of furniture is done in retail stores. When you look at the luxury furniture industry, it's like 95-5 and that's just because the customer's more discerning, they're spending more money, it's more of an investment and has everything to do with comfort you know sit finish color scale and all the things you know but you don't want to get wrong like this it's one thing if you're an internet shopper today you know you order five things and you return three or you know some people order ten things and they keep one or you know send all ten back you really can't do that with the furniture business you'll bankrupt you know people and most people charge for restocking fees I mean we haven't yet we're going to probably change that because we do think some people take advantage of the ordering stuff and then just go, oh, we'll just, this is what we'll keep, let's go and send that. But it's very expensive to make mistakes in the furniture when you're buying furniture.

Okay, thanks for all that detail, appreciate it. The follow-up I had is just international. It was helpful to get the context of where you see the drag going in 2027. Can you talk a little about the assumptions there? Because you'll be cycling flagship openings, right? And I guess we haven't really gotten the revenue, but curious when you think about the UK versus continental Europe, are we at the point where the UK can be much larger from a revenue perspective and that's really helping from a profitability perspective? Thanks very much.

Yeah, one of the biggest things is just the cost to open in Europe, right? The number of people that we have to have fly from America put up in America for months. You're training. The three global flagships were the first hospitality experiences. Orange England we did, but there's not a very high volume hospitality experience. That's out in the countryside. These were real complex hospitality experiences. So you have a typical gallery for us. employed 30 to 40 people on the gallery side and will employ 120 to 130 people on the hospitality side. And so when you're opening restaurants and hospitality, it's longer training, it's more complex, more people. And just to support that you're needed from America. We had a lot of people on the road for a long time you know making sure we're opening these right you know you don't get a second chance to make a first impression and you know we're not the most popular people or content right now right you know so you want to open correctly you want to be respectful you know a lot of things that

but assumptions wise, Steve, again, it's, you know, obviously the drag of the opening costs that Gary just mentioned, you have to build up the revenue that's helping to reduce the drag. Obviously the absence of these large costs, we have no more European things in 27. So, you know, those are the building blocks and they're just, they're kind of self-evident, but just pointing them out.

Okay, thanks for all that detail. Best of luck.

As a reminder, we kindly ask to limit yourself to one question and return to the queue for any additional follow-ups. Your next question comes from the line of Simeon Gutman with Morgan Stanley. Your line is open. Please go ahead.

Hi, guys. Hi, everyone. I guess maybe more of a math question. So if you look at the progression within your back half guide, it looks like there is a bit of a stair step to the third quarter in terms of the underlying stacks. and then another step up into the fourth quarter. Is that explicitly estates or and can you speak to the momentum you're seeing within that brand and then what else is it if it's not just estates?

It's listed right there. So you have it in front of you, the press release. If you look at it, it's inclusive of backlog reduction of 6.5 points. are each estates at eight points and new galleries, you know, another at four points.

And that was Q4, obviously we have three there as well. So you've got that in, you see the quarter to quarter increases in this.

Okay. I guess if I may restate, I guess what gives you confidence and I get the backlog reductions, but, you know, can we talk about the confidence in, you know, in that acceleration?

Yeah, I mean, that's what we do, right? That's how we built this company is expanding product and mailing books and setting products and galleries. And, you know, we have a lot of math around this and, you know, the big important launch we think is meaningful and we've done meaningful things a lot. I mean, even if we, if you look back at, you know, the product transformation we went and accelerated into, you know, after we kind of stumbled on, first contemporary round, we doubled down and we were able to move business 15 to 20 points, right? So this could be conservative. I mean, if you look at our history, like if you think about modern move to business, when you think about when we, you know, accelerated product transformation in contemporary. I mean, we moved the prior two and a half years. I don't think this is that aggressive.

Okay. Thanks, guys. Good luck.

Your next question comes from the line of Stephen Forbes with Guggenheim Securities. Your line is open. Please go ahead.

Hey, Gary and team. So, Gary, maybe just following up on RH Estates as all of us try to gauge your conviction here in the 8% net revenue growth contribution in the fourth quarter, can you confirm whether that's based on sourcebook-only demand and or maybe just comment on how much footage you're dedicating to the collection in the fall? and we'd love to just hear how weekly demand scaling at the collection level is telling you where that 8% can go over a relatively short period of time versus that 50% sort of five-year target.

We have data right now with the estates building just in the mail and just on the website with you know, long lead times and, you know, not in stock. So, you know, we know what, you know, if something has a four week wait, a six week wait, an eight week wait, if something's running backwards at X, Y, Z, there's math around all of that that we can forecast demand, right? Based on what we're seeing, then there's you know so there's in stocks there's wait times then there's then the big move is when the product goes into the galleries you know and I think we've said publicly list factors like no maybe not you know our competitors know all that okay I can't remember I've been doing this a long time Do you know the lift factor for putting something on the floor? Yeah, 50 to 100%. And it can go as high as 100%. So we have that. And then the other thing, like when we say other and stuff like that, just think about we're going to make a big transformation. Think of our big galleries that are mostly two-floor galleries. So when we do a flip and we're bringing newness onto the main floor, One, not everything that's on the main floor leaves. What we do is we look at what are the best sellers, everything's ranked, and we take the bottom stuff off the floor, right? So you take the least productive goods on the floor, and your bet is, and hopefully, again, this is why we don't put it on the floor right away. We generally like to look at things for three to six months, here because we believe it's so incremental. And we have data of classic things we've sold and still sell. Things that we didn't realize we couldn't kill it, right? So we just know the market's still there. I mean, we've been selling St. James since 2008. We still have St. James. Can't stop selling St. James. you know are some of our other you know just classic things like that and we realize that we you know we transition the business too far and you know if you look at most specialty brands most specialty brands are built around an aesthetic point of view you know whatever category apparel or this or that you know it's got a stylistic point of you know like most of us here started in apparel you know and so you know you know Armani looks like Armani, Ralph Lauren looks like Ralph Lauren you know yeah it's got their point of view American Eagle's got theirs or Abercrombie whoever you're looking at right and um Chanel's got their point of view you know Ray's got a point of view uh so most of us come from that and you know the longer we're in this the more we learn and uh Again, if you go back and look at the video, I think I outlined it very clearly about what we want to do is own the kind of seven major product categories and the three major aesthetics. And we think that if we do that really well, we can be relevant to all the customers at that level in the market across you know all the architectural vernaculars and major you know major stylistic points of view and there might be some stuff like you know I'm likely not going to let the brand go after grandma chic right it's a little trend I mean you know Kendall Jenner you know it's an art digest and did a tour of her new cabin and you know Kendall Jenner like was great for a brand right she had the cloud and you know this and that and took people to her home then and you know I don't know maybe it's just because it's me and I'm like I don't like flower sofas and stuff like that but you know so you do have to kind of keep your brand a little disciplined you know so we're going to let everybody else have grandma she or things like that and I don't know what some of the other weird trends that we're seeing right now that we're not you know like we don't have to own everything you know and I mean to this day people think that you know we're going to go bankrupt because we don't sell enough color yeah it's those are the same people that you know haven't really looked at that many homes like if you just you know go in Zillow or Redfin and you know go look at 100 homes and find out how many have a red sofa you'll realize like not a lot of people in the world have red sofas so if you want to be in the red sofa business go right ahead want to be in the flower grandma sheet you know printed sofa business go for it like I'm happy for you that's not going to see us in those things so far but you know I think the you know when you think about just the you know revenue for states and it's you're going to see the big ramps happen when the goods get in the galleries the in stocks you know start to peak and we expand the circulation meaningfully. So we have a lot of customers lined up right now just waiting, when can I see this in the gallery? When can I see this in the gallery? So there's pent up demand, people waiting just wanna know when they can see it in person. Because again, the data will tell you at the luxury end of the market, it's like 90-10 or 95-5, people wanna see the goods.

Thank you. I'll pass it on.

Your next question comes from the line of Max Raklenko with TD Cowen. Your line is open. Please go ahead.

Hey, guys. Thanks a lot. So first question, when we think about the 4Q contribution from estates, that's on a delivered basis. So just curious how we should think about how much higher the demand could be. And then given how your demand builds and sort of some of the color that you've given us in the past couple questions. Four Qs, obviously just a jumping off point for when age 27. So curious if you could just provide a little bit more color on how we should think about how big estates can get into next year.

I don't know, Max, I was going to ask you how you like the pizza or any of the pastas last night. Because I saw you in the restaurant. How do we think of demand relative?

Clearly, Max, demand is in excess of the revenue growth as this business is building and ramping. You're leading us to the same conclusion. It's evident that in Q1 that that continues, especially with the presentation of the product in the gallows and newness that Gary talked about, 30% bulk and whatnot. We don't talk about demand growth. at least at the moment we don't because there's times and transitions we do but today we don't and so you know this is a growing business so clearly paying growth rates as we build in stocks as we present the product etc.

as Gary's talked about are some level higher than this when you ask about when you think about how half one versus half two looks Max maybe leading into H1 2027 how does that

I would say there's a good five years of building here. It's going to be like a new business and a growing business.

I think the most similar thing is Orange Modern. Right? I mean, we weren't known for modern. We didn't have that aesthetic. No one was coming to us. You know, they were going to design within reach or going somewhere else. I mean, but we hopped on it because we saw an explosion of modern architecture happening around the world. We saw the verticalization of cities. We saw the influence of technology influencing customers that haven't worked from modern point of view. We're all walking around with iPhones. You know, the big commercial architectural trends were all modern. And if you look back in the 1950s at mid-century modern, it wasn't really that big. I mean, you had the Bird Streets in LA, you had different places, Miami, Florida, places like that. but you probably didn't have too much mid-century modern in Boston, New York, Philadelphia, places like probably down in Greenwich. Maybe there's a collector or two. And then you saw a lot of places being remodeled. A big boom in LA, that's why we opened the first R.H. Modern. I guess the first and the only freestanding R.H. Modern. They were building the big one. Oh yeah, we had Dallas for a little while. So, yeah, that's why we wanted to open in Greenwich, right? To really get a sense for, okay, here's a market. We do a lot of volume for 14,000 square foot main gallery with a four or 5,000 square foot outdoor gallery. Was 47 the right number? 46 something. So, okay. Yeah, and like, I don't know, like, Could we do another, I mean, could we comp up 50 or 70 in a market like that? I don't think that the customer who's looking and buying contemporary or modern is all of a sudden jumping up and down about estates. And I think the people buying estates are, you know, they're looking for something like that. And right now, something like that doesn't exist. I mean there's a lot of classic traditional like really you know I mean like let's see you know not good looking furniture out there it's not like there's not there's a lot I mean you go look at a lot of the classic furniture stores that you know have looked the same for 40 years or something and there's a lot of them out there you know so the market share I mean, people doing business. I mean, go to High Point, North Carolina. It's a lot of classic furniture. Go to the furniture market in Nebraska and get a big Berkshire Hathaway thing. They do like 700 million now here. They've got to be 85% classic tradition. So it's there. And I think in a lot of ways, we'll create a new high-end market for the aesthetic, the way we're going to build it out. And the whole point of view and the aesthetic point of view will evolve and change. We will shape part of it. We're going earlier than we normally go on a trend. So I just like to let the wave break and kind of see who's riding it and how we can exploit it. I think because of the platform we have and because we've you know this is I mean good and bad for me right I lived through this trend I was consumer so first trend I actually participated in consumer that's really good news I've got a I mean yeah I have the Michael Taylor diamond tables I have a lot of the things and stuff you know so I've got a point of reference like and on all this stuff and you know that's good and bad too by the way you know because it's never the trends never come through exactly the same they always get shaped by designers. It always comes through fresh yet familiar. But it has to be fresh and it has to be familiar. But I think we can help shape this one, but we're gonna evolve it, we're gonna be inspired by other people, they're gonna be inspired by us, other small furniture businesses that are run by highly aesthetic people will do some really great things and the market will evolve and we'll hopefully get a very good share of this evolving new trend and be a permanent player in classic traditional

got it that's helpful and then just quickly I appreciate the color in the compounds and the design galleries can you just compare and contrast how unit economics could look compared to the legacy gallery formats that you've opened for the past decade should revenues and margins be pretty similar or could the margin profile actually be a little bit stronger given maybe less SG&A associated with the new format uh compared to what we've seen previously yeah like we think um

so what happened we were building our multi-level design galleries with a restaurant on the roof pre-COVID anywhere from you know a lower cost market I think we hit a low of like 27 million you know in a couple of Charlotte yeah yeah yeah you know so some of the lower cost 27 to 30 um a more expensive market to build might have cost us 35 and the cost of those went to 40 to 60. I mean, with just all the inflation costs that happen in construction, especially better quality high-rank construction. So that necessity is the mother of invention, right? We were already pregnant with a lot of real estate we had to build. We were committed under construction too far down the pipeline to change course. But we've invented a new concept. We said, look, if you say what's really good about one of our multi-level galleries with a restaurant and that whole breed, there's really a lot of good things about it. What are the bad things about it? Multiple floors require Grand staircases, they require elevators, generally two. They require two sets of basic stairs. Those are not cheap to build. So you've got multiple stairways that, by the way, do zero dollars per square foot. There's no transactions happening in the elevators or the stairways or the grand stairwells. There's a lot of square footage. and then when you take that and start you know compounding floors then you put a furniture on the roof and all of a sudden you've got a whole different coating you know you need different footings and foundations and steel gets upsized and you know with all the inflation steel that was a big problem for us and you know those those just became very expensive and then everything you do on a multi-floor building right you've got cranes and pickers you've got guys trying to put metal awnings on windows on the second floor the third floor and you know you've got cranes and everything all around and you're trying to plaster the whole building multiple floors so if you think about a compound we disaggregated one of those big galleries and we said okay what can what can we get rid of and you know you know there's some fortunate real estate opportunities because of um you know I think Sachs went bankrupt first right and then Sachs came out of bankruptcy and then Nordstrom went bankrupt you know then Sachs bought Nordstrom so you know different opportunities were coming up for real estate we think more will come up you know high-end and Tabs. Also to think about what's happening with transportation and driverless cars, even Uber and driverless cars. There's gonna be a lot of parking lots in very good shopping centers that have way too much parking, very, very soon, right? And it's already happening now, the zoning laws are changing. So we said, how could we be opportunistic with, which we think is the reduction of real estate, you know, Sachs, and they didn't come out of bankruptcy yet. Sachs did, yeah. Yeah, they did. Oh, they did, okay. Yeah, but again, I think they're not going to keep the same footprint. So there's going to be opportunities with luxury department stores kind of closing. We took, one of them we're taking just a parking lot space in Alcantara, and then Naples was a Nordstrom's that closed. And, you know, and so they're relatively big paths. And what we did is we said, hey, what, you know we build this really interesting and design is really interesting and we said well what if we build multiple small buildings connected with beautiful garden courtyards and pathways and fountains and fire pits and we put a restaurant in the middle and you know it's beautifully landscaped and so we have a fraction of the square footage under roof when you really look at all under roof we have individual buildings that don't have to have connected mechanical systems, so much less complex. Mostly the buildings are four to 5,000, 5,500 square feet. I think we have one, two, three, four, five, six, kind of seven connected, seven independent structures in Naples. And they're designed in a way that it's, It's designed for outdoor furniture, outdoor, and designed the room through design, you know, very efficient ways. We actually get more product per square foot, but I think it's going to feel just as elegant and grand. You know, it doesn't take any cranes, doesn't take any stairways, doesn't take any exit stairs, doesn't take any elevators, doesn't take big footings. In fact, most of our, even in, I think in Naples, right, it's all wood, no steel. Yeah, 100% wood. Some of these we believe we can prefab build the walls and just tilt them up, you know, plaster the outsides. We designed them so they only have a couple of kind of windows because we thought we could, you know, manufacture the windows and do a lot of things. So, you know, they're going to cost us, we were hoping the price was going to be half and it's half. You know, so, and we get more product density. and I think they're going to be more exciting to shop. I mean, you're really walking, it's like a resort. I call it like a design resort. Walking through, depending where you are in the US, in Florida, you're going to have palm trees, banana palms, all kinds of tropical foliage and stuff. In California, you'll have all the trees and other things and they're going to be cool. They're going to be very interesting and I think the restaurants are going to be beautiful. It's like a glass box in the middle of an atrium that indoor, outdoor, indoor seating, outdoor seating. So we're super excited about it. Everybody who's kind of seen them, you know, Dave, you just got back from Naples, right? Like walk through, it's like, feels good. Like even though it's a construction site still, you know, you get the feeling of like, it's nothing, nobody has anything like it. And what else is, you know, Dave and I were talking about, what's good about it for the landlords, you know, they'll take more risks on these and I think participate more smaller buildings so you know they're always worried like oh what if something goes wrong with our age I'm stuck with this three-story building with the restaurant on top like who's going to lease that from me right not a lot of people but you know you sell them on hey look I've built you a little village you know you can put eight retailers in here you know beautiful they all connected it's just an extension of you know your shopping I think we have a good selling point and I think we're gonna be really good partners for developers. So we're excited and the single floor galleries that we're doing that are anywhere from 18 to 20, right? 23,000, 24,000 square feet with beautiful courtyard restaurants in the middle. We have our new Italian concept that we just opened in Greenwich. and Gina Angelina, so it's named in honor of my Italian mother. Now some of you are gonna ask if my mom was a good Italian cook, and she wasn't, and that doesn't mean I can't honor it, right? She did like to eat, but my uncle Gino was the cook of the day, so I also talk about him, if you see the menu and stuff like that. But some of these compounds we're doing is really fine. You can see big piece of oven and, you know, We think we have the best pizzas in America. If any of us here really wanted to take a flyer, I think you could take our pizzas on the road and we might have the best pizza concept in America. I wouldn't want to be any of those Papa John's or anything to compete against our pizzas. They're so good. We have this pizza expert that works for us in Europe, Matteo, who's perfected the crust. Did you have pizza last night? Max Nex, no? I did not, no. You ate last night. I saw you. You're trying to get information on the gallery. Anyway, these compounds are going to be great, and I think the returns are going to be as good or better than anything we've ever done. And I think single-floor galleries will be as good or better than anything we've done. and so I think you're going to see capital spending go down, returns go up and I think you'll very quickly see our return on investment capital kind of return to where it was at our peak.

That's great. I appreciate all the color. Good luck to the entire team in the second half. Speak soon. Thank you.

Your next question comes from the line of Chris Nardone with Bank of America. Your line is open. Please go ahead.

Great. Thanks, guys. Good evening. Can you guys elaborate on the health of your core inventory? And can you talk about whether you foresee a need to step up promotional activity to help clear way for the estates rollout as we look into 2027?

It's not really clearing way for estates. Estates is going to be incremental to the assortment. So we're not really clearing out stakes. I mean, some of the things that are in the galleries today will come out of the galleries. And we've got a pretty good outlet network and ability to rotate through that. But it's not going to cause markups. I mean, the environment in our category is very promotional right now and has been. So there's a lot of data out there. you know people are I mean down to the you know by week how many you know how promotional how many you know SKUs does RH have versus Pottery Barn versus our house versus this you know like I mean everybody you know when you're in the home business like this and you get a down housing market you know four million homes four straight years unless you want to lose market share you you know you've got to be competitive so It's been somewhat of a promotional environment. Our margins are holding up fine. If you just take our model and extract a lot of these drags, our underlying model on RH is a really good model. It's a really good model. We didn't have the drags from international. I don't know. It's right up there with anybody. So we're happy to cycle through here. A stage is going to be incremental. Think of a stage like a new category. It's like when you've got a new aesthetic like that, it's really like a new category. It's like a new business almost. but we get you know we get to sell it on our platform so it becomes very incremental and it's very leverageable I mean this is that things like this are the biggest drivers of profitability right they're like yeah we we've spent some capital here you know we bought some businesses you know and things like that to uh to build this but you only have to do that one time and, you know, built a freestanding estate store here. We bought formations. We also bought the formations real estate, formations in Denison Lane. And we're gonna transform that property to an R.H. Estates gallery that scientists have done in West Hollywood on Melrose Avenue.

So, you know, on Melrose Avenue, we will have the R.H. Interior Gallery.

We'll have the R.H. Estates Gallery. And then we, three doors down from the R.H. Estates, footprint which is at 195 feet of frontage right on Melrose and our current gallery is 145 feet and then we we took another smaller location for RH outdoor so a freestanding RH outdoor and then on Beverly Boulevard a couple blocks away we have an RH modern freestanding so yeah the question is do we need to keep modern and modern consolidate into the you know the kind of core build building that's had modern you know had some modern and contemporary that you know we may keep the whole footprint we may consolidate some of it but I think you'll see you know you'll see us test like we I think we've talked about in the past about our ecosystems where one of the capital efficient ways to deploy the brand especially got a presence like in Greenwich. We don't want to leave the historic post office as probably the best location in Greenwich. We were able to get the second best location in Greenwich, the Ralph Lauren building. And so we call that an ecosystem. So we'll have, you know, the historic post office, we'll have Arch Contemporary and Arch Modern states. We'll be in the former Ralph Lauren building. And then we've got a, 5,000's worth and 4,000's worth with our outdoor gallery. Outdoor is a very important business to us and so a lot of the key markets, we might have a freestanding outdoor presence, but instead of trying to get rid of our real estate that we're in and going out and having to build a big new thing, or we'd never find a big, being at the location I'm running a job, we'd have to go kind of off the beaten track and I don't know if we want to there. So we call that an ecosystem, we've got an ecosystem Desert. We're doing one in West Hollywood, as I just described. And it's just a much more capital efficient way to continue to deploy the brand and dimensionalize the brand.

All right. Thanks, Gary. Good luck.

Thank you.

Your next question comes from the line of Christina Fernandez with Telsey Advisory Group. Your line is opening. Please go ahead.

Great, thanks for taking my question. I wanted to see if you can expand more into the trends you're seeing in Europe. It looks like London's off to a very good start. Are you seeing, you know, the end consumer shop more there or is it more geared towards the trade like what you're seeing at the other European locations? Maybe an update on how Paris and Milan are ramping up. Thank you.

Yeah, Amy, you're asking at a funny time, right? In August, it's not usually the best month.

Everybody's on vacation, so people are just getting back. Especially Milan, they fire cannon down the streets in most cities in Italy. But same thing with Paris. Everybody in Europe is on vacation in August. and everybody starts getting back in September and business will ramp. Yeah, our focus is how to build the brand in each of those countries. I think they're all different. It's interesting, each one's culturally somewhat different and shopping behavior's different. I mean, obviously the languages are different. I think that surprised us a bit, just how unique uh they are um so yeah you know how do we market how do we you know build awareness how do you build the business with the trade we have a lot of learnings that we're uh flying early tomorrow morning to paris um and so we'll be in paris uh tomorrow night and saturday and then saturday uh I mean, London, I mean, London had a running head start for multiple reasons. One, the country speaks English, right? It's primary language. Two, it has the most expats and we have the most customers over there, so we ship. London's the number one place. We don't ship to other countries, but customers can buy from us and we help them get their goods containerized as they take control of the shipping. But London, we have the most shipping to. And then we've had RE Changeland open for three years. And RE Changeland kind of ramped up by around 38 million demand. So you see an awareness that's been built up there over three years. and yes that's why we expected London you know we we wanted to open London first it's just that was the most complex of the deals and was going to take the longest and so on and so forth and that's why we did R.H. England to kind of get you know get positioned in the marketplace uh so uh you know but yeah like we're happy we're learning um you know about the business and um you know lots and lots of opportunity and the key is you know you can't be an absentee kind of leadership team like you can't leave everybody on an island in these individual you know geographic so you know if we're ever going to be on the east coast likely we're going to hop over to Europe and then we're going to go to Europe at least you know at least four times a year just to go to Europe you know spend you know half a week or a solid week and really spend time with our teams you know going to say inside our company the smartest people in the company there's people closest to the customer and those of us that have gotten promoted you know generally get farther and farther away from the customer and we get dumber and dumber right so the only way you can lead is if you you know first listen a second learn and then you can effectively leave so uh so we're in listening and learning mode and yeah I'm trying to be better leaders of our business but we have to do a lot of listening you know let's spend a lot of time and you know yeah our people yeah they've been very helpful we've learned a lot so you know we've got to get in stocks we've got to deal with the different if you do different raw material issues and different plantability issues and you know whole street lighting things like that it's been a little bit more complicated for us uh and so we're you know we're working through a supply change to be more responsive and compete better um but you know i i like the direction we're going you know and i think uh i think we're gonna get better and better and better and you know this drag's gonna go away you know and so uh And London's, yeah, very exciting. I mean, like, we were, you know, we had our fingers crossed, and I was thinking, come on, you know, I mean, what should this be? What could it be? And, I mean, to see the first eight-week grant there, it was really exciting for us. And we've got a great team. We've got a great leader, you know, building a great design team there. And I've never seen customers like that. How many days was I there? Like nine days or something like that. I was in the gallery quite a bit at the opening and I'd never seen a level of customer and a level of wealth like that in our galleries. These are really important, big projects. I would say it wouldn't surprise me in two years, maybe by year three, that London's not the number one RH in the world, you know, unless we open the Middle East, you know, sometime before then, because the more we're learning about the Middle East, yeah, a lot of people believe that will be our number one gallery, you know, in Dubai.

Your next question comes from the line of Marius Maurer with Zelman. Your line is open. Please go ahead.

Good evening. I'm just curious, Gary, you mentioned that most of the states is protected by IP. And obviously, you know, the furniture industry is notorious for knockoffs. And there's a long history going back probably 150 years of mixed success in defending designs in court. So I was just curious, I wanted to ask if you could give us maybe a bit more insights into what you think will make states easier to defend? Is it maybe that the finishes are more intricate and just easier to defend than contemporary or is there something else?

Well, there's a lot of levels to it. So in cases where we bought the brands, brands have IP and that's pretty strong that we think is good. But a lot of the businesses we bought were more item focused. you know we um dimensionalize our assortments and so yeah use our design teams to dimensionalize things and so forth so they're those become original RH designs and so we you know filed for design patents on almost everything and um you know i we're we're pretty big in our industry i think if you get a letter from us that were cotton pennies on a design. I don't know if you want to go to court with us. I don't like to go to court with people. My people screw up and we've been influenced by something. We get a letter here, I usually hold the tent. Why do I want to fight in court and spend a lot of money? It doesn't happen to us often, but I tell people, let's not waste our time. We don't want to spend time with that. But we think the work we've done with the states is very defendable. I don't think the government invested this much into design patents. So we'll see. Maybe no one's ever invested in protecting you know, intellectual property in this industry that well. I mean, look, go try to knock off a Giacometti table. There's a reason we haven't. They will take your ass to court. So unless you wanna go spend millions of dollars fighting over it, like we don't have any Giacometti influenced coffee tables. Even though I'd like to, I think they sell great. So, you know, a lot of it is, I just don't think yeah the furniture business hasn't really been a sophisticated industry hasn't been well capitalized you know a lot of mom and pop stores you know so nobody really had you know the legal department we've got our new chief counsel sitting next to me here Ryan and yeah yeah he's gonna help get us all teed up and uh not to play defense play offense um so yeah that's why we're you know we're We're moving like that. I don't think people want to get sued by RH.

Thank you.

Your next question comes from the line of Brian Nagel with Oppenheimer. Your line is open. Please go ahead.

Hi, this is Casey McKenzie on behalf of Brian Nagel. You mentioned tariff refunds will help offset the 50 million of unplanned supply chain costs across the full year. Do you think that amount is still ramping as fuel costs remain increasingly volatile?

What are you saying?

If fuel costs persist into the next year, how do you think about possible mitigation efforts as we lap next year's oil price spikes in the absence of refunds?

I think everybody's mitigating where you can mitigate. like, where's oil today? It broke 109. Yeah, okay, so you're at 109. Like, I mean, oil is 63. Like, beginning of the war. Like, you're not gonna be able to mitigate that. You know, there's, I mean, costs are going up, inflation's gonna go up. You know, there's... There's a reason why the administration said that the war was ending and we were going to have a deal in a day or two 38 times. There was an urgency to end this war and end this conflict because it's likely not good for the election. Now it might be too late. So now the administration offered voters $5,000 to every American. voted for the president of the administration. That's interesting. I think we're in a time of conflict. We're going to be in a time of inflation. I don't think they're going to be able to keep the lid on interest rates. You know, I keep thinking, gosh, you know, it's like my entire career, and I've been doing this a long time, I never saw a housing market, you know, that was down longer than 18 months. So it looks like we're gonna go into year five. So I like the game we're playing. I think we're playing offense. We're gonna build our own bigger market. So I think we'll be able to grow, you know, pretty well through any kind of market as we look forward. But there's gonna be costs, you know, so, Walmart had a $2 billion tariff refund and it's all going to increased costs in some lower prices. Home Depot, like 700 something million, all going to increased costs. Yeah, there's massive increased costs. Nobody's got a magic wand. Nobody's going to get that much better price than somebody else. if you have leverage you'll use your leverage and yeah but you know you can't make your you know your partners go bankrupt right or you have no partners so it's gonna we're gonna be in a higher cost world for probably at least the next six to twelve months i mean less i mean even if tomorrow they end the war i you know there's too much too much inflation in the pipeline i mean all the raw materials are going up everywhere on everything everything is impacted by oil you know so um you know that's why you know i mean you're seeing crazy things right we're trying to manipulate currencies buying back things like it's a crazy time thank you

Your next question comes from the line of Jonathan Matuszewski with Jefferies. Your line is open. Please go ahead.

Oh, great. Good evening and thanks for taking my question. Gary, it was on the recent revamp of your trade program. I was curious if you could speak to any indications of early success, how the trade community is embracing it and relatedly, are you doing anything to activate the interior design community with the estate's launch that's perhaps maybe different from how you've sought to build awareness for prior brand launches in the past? Thanks so much.

Thank you for a really good question. Our trade teams are over the moon. We launched a new program. I think designers are you know happy firms are re-engaging us we've seen an acceleration of our business a meaningful acceleration that we're already at a level that offsets the discount you know so we've hit the volume levels we needed to kind of offset the discount so and the pipeline's building so it's been fantastic and our teams are working on different engagement methodologies you know we're looking at doing you know more events in our galleries we have very nice spaces so we're going to even smaller events if designers want to come and you know do things that you know we're we're going to be a lot more open on multiple levels you know with the trade so um and i think the trade's very happy that we're doing uh bespoken couture right that we're doing com we're They can specify. So that's a big deal. And I even met a gentleman in his family last night that we talked for about 30 minutes. And we've done three homes for him. And they were building a big new contemporary home. And he didn't think that we were going to be able to do it. And then he said, I thought it was great that you guys just launched this bespoke thing because now you're going to get the fourth home. I thought that was pretty good. It's a big home. And they're a huge fan. I was talking to the family last night. I was like, I mean, just right there. I mean, you don't want to lose customers like that that are building their fourth home and might not have been able to do it. So, again, we're learning. We've got to stay focused. close to our trade teams and our leaders and you know there's more we can do and you know but but I think I don't think that anybody offers the trade more support and services than we do right we support them with you know doing floor plans doing renderings doing you know we work as like a back office not just you know supporting them with products but supporting them with Design is supporting them with installation. When you think about the hard part of competing with us in the design world is that we've got such a broad assortment and we've got such good experience and tenure in our interior design business and the services we offer. and just the logistical ease of working with us, getting a home designed, getting it all delivered at one time, getting it installed. We have a lot of resources supporting that part of our business. And I think, as far as someone who also supports I think we have real strategic separation from the next best person here.

There are no further questions at this time. I will now turn the call back to Gary Friedman for closing remarks.

Thank you, everyone. Appreciate your participation and all the questions. And we look forward to talking to you next quarter. Thank you.

This concludes today's call. Thank you for attending you may now disconnect.